The Oxford Handbook of Banking

1033 Pages·2010·4.29 MB·English

by  Allen N. Berger

the oxford handbook of
BANKING
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the oxford handbook of
.......................................................................................................................................................................
B A N K I N G
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Edited by
ALLEN N. BERGER
PHILIP MOLYNEUX
and
JOHN O. S. WILSON
1
3
GreatClarendonStreet,Oxfordox26dp
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For Mindy
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Catrin, Lois, and Rhiannon
(Philip Molyneux)
For Alison, Kathryn, Elizabeth, and Jean
(John O. S. Wilson)
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reface
P
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Whenwecommencedthisprojectatthestartof2007,banksaroundtheworldwere
postingrecordproWtsandmajorrisksappearedtohaveabated.Thegeneralmacro-
economic environment embodied in rising stock markets and buoyant economic
growthprovidedthebedrockforthestrongperformanceweobservedatthattime.
Since then things have changed completely! During the Wrst half of 2007,
followingincreasesininterestrates,therateofUSsubprimemortgagedelinquen-
cies increased, prices of mortgage-backed securities were reduced, and the cost of
insuring these securities against default increased. The turmoil that then hit the
global Wnancial system has been unprecedented. There have been widespread
government bank bailouts, recapitalization plans, liquidity injections, and credit
guarantee schemes aVecting many countries. The cost of all this activity has been
enormous. InApril 2009, theIMF statedthat USWnancialinstitutions werelikely
to incur $2.7 trillion of losses from the global crisis, part of a worldwide total
expectedtotop$4trillion.Globalbankingsectorinstabilityandgridlockinmany
other Wnancial markets have raised profound concerns about the stability of the
Wnancialsystem andthebusiness modelsused bybankswithinthe system.
Aswecompletedthehandbookinearly2009,bankingsystemsinmanycountries
(particularly in the US, UK, Germany, Spain, Ireland, Iceland, and throughout
central and eastern Europe) remained in a state of crisis, threatening capacity to
perform eVective intermediation functions for many years to come. Government
intervention in banking continues via the purchases of impaired assets, recapita-
lizationsoftroubledbanks,andinjectionsofliquidity intothesystem.Academics
andpolicymakerscontinuetodebateproposalstoWxtheWnancialsystem.Reforms
thathavebeenorarelikelytobeadoptedinthecomingmonthsinclude:extending
thecoverageofbankregulation;increasingcapitalrequirements;designingcounter-
cyclicalcapitalrequirements;enhancingregulationandsupervisionofbankliquid-
ity; enhanced supervision of credit rating agencies; codes covering executive pay
and beneWts; improving arrangements for regulation of the activities of cross-
border banks; and a shift in focus from micro- to macro-prudential supervision.
IflessonsarelearnedfromtheongoingWnancialcrisis,thereislittledoubtthatthe
bankingindustrywhichemergesintheyearstocomewillbeverydiVerentfromthe
onewe observedatthe beginningof 2007.
Thishandbookprovidesthereaderwithacomprehensiveoverviewandanalysis
of banking. The authors of the following 36 chapters comprise a collection of
viii preface
leading academics and policymakers in the Weld. These authors emanate from
universitiesintheUnitedStates,Europe,SouthAmerica,andAsia;theUSFederal
Reserve System; the OYce of the Comptroller of Currency; the European Central
Bank; the Bank of Thailand; the World Bank; the International Monetary Fund;
and the World Trade Organization. The book strikes a balance among abstract
theory, empirical research, practitioner analysis, and policy-related material.
DiVerent chapters in the handbook have diVerent emphases on these four ingre-
dients.Wehopethatthecontributionscontainedinthishandbooksetthestagefor
futureresearch andpolicydebatefor manyyears tocome.
cknowledgments
A
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Firstly,andmostimportantlywewishtothankthecontributorstothehandbook.
We are delighted to have brought together such an outstanding set of research
experts from academic and policy arenas across Europe, North America, South
America, and Asia. These experts have shown a high level of commitment and
perseverance to the project from beginning to end. Without their expertise,
dedication, andeYciency inproducingscholarlybankingchaptersthishandbook
would never havebeen possible.
The production of this handbook has also relied heavily on the exceptional
enthusiasmandcommitmentofOxfordUniversityPress,mostnotablySarahCaro,
publisherforEconomicsandFinancewhowascrucialinhelpinguskick-startthe
project. Oxford University Press delegates and a number of anonymous referees
alsoplayedanimportantroleinadvisingontheshapeofthehandbookatitsearly
stages.WewouldalsoliketoacknowledgethehelpandadviceofAimeeWrightand
Jen Wilkinson, Assistant Commissioning Editors who worked closely with us
throughout the entire production process. Harriet Ayles, Emma Hawes, Lianne
Slavin,andLucyGostwickalsoplayedacrucialroletowardtheendoftheproject.
Our proofreader, Michael Janes, also provided invaluable service toward the Wnal
stages oftheproject.
We would also like to acknowledge the support of our home institutions: the
MooreSchool ofBusiness at Universityof SouthCarolina; the Business School at
Bangor University;andthe ManagementSchoolatUniversityof StAndrews.
Anumberofindividualsprovidedcommentstousonthecontentandstyleon
parts of the handbook, including Barbara Casu, Mark Flannery, Claudia Girar-
done,JohnGoddard,DickHerring,EdKane,DonalMcKillop,JoePeek,andLarry
White. Abig thankyougoestothem.
Finally,wewouldliketothankourfamiliesandfriendsfortheirencouragement
and patience over the last three years while completing this handbook. Their
support is muchappreciated.